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Analysis Of The Co-Movement Between Local Government Debt Risk And Bank Risk In China

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  • CHANGJUN ZHENG

    (School of Management, Huazhong University of Science and Technology, Wuhan 430074, P. R. China)

  • SIWEI HUANG

    (School of Management, Huazhong University of Science and Technology, Wuhan 430074, P. R. China)

  • NINGYU QIAN

    (School of Management, Huazhong University of Science and Technology, Wuhan 430074, P. R. China)

Abstract

We characterize the debt risk and bank risk of local governments in China with a dynamic factor model that decomposes 31 provincial data of China into country, regional, and idiosyncratic components. The result shows the presence of co-movement between local government debt risk and bank risk. The country, regional, and province factors explain 62%, 16%, and 22% of local government debt risk, respectively, and 28%, 8%, and 64% of commercial bank risk, respectively. Sub-sample analysis reveals that the country factor has become less volatile and its importance typically increases across all provinces after the reform of local government debt financing pattern (e.g., the introduction of Document No. 43).

Suggested Citation

  • Changjun Zheng & Siwei Huang & Ningyu Qian, 2021. "Analysis Of The Co-Movement Between Local Government Debt Risk And Bank Risk In China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 66(03), pages 807-835, June.
    • Handle: RePEc:wsi:serxxx:v:66:y:2021:i:03:n:s0217590819500632
    DOI: 10.1142/S0217590819500632
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    Cited by:

    1. Xing Li & Xiangyu Ge & Cong Chen, 2022. "Several explorations on how to construct an early warning system for local government debt risk in China," PLOS ONE, Public Library of Science, vol. 17(2), pages 1-27, February.
    2. Lei Wang & Zuchun Luo & Wenyi Wang, 2023. "Risk Contagion of Local Government Implicit Debt Integrating Complex Network and Multi-Subject Coordination," Sustainability, MDPI, vol. 15(21), pages 1-23, October.
    3. Ruitao Gu & Qiaoyun Zhang & Wei Zhou & Jianxu Liu, 2022. "Judging the True Health of Finance Institutions Based on Risk Behavior and Operation Performance," Mathematical Problems in Engineering, Hindawi, vol. 2022, pages 1-21, November.

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